The Nigeria Electricity Regulatory Commission (NERC) on Thursday moved to remove historical related liabilities from the financial records of DisCos.
NERC said that the order No. NERC/196/2020 that it issued yesterday seeks to resolve the continued accumulation of future tariff related shortfalls during the transition to cost reflective tariffs and to prevent the accrual of new liabilities in the financial records of DisCos.
It directed all the 11 electricity distribution companies (DisCos) to fully settle all the invoices they receive from the Nigerian Bulk Electricity Trading Company (NBET) in line with the applicable tariff shortfall and the the 2019 Minor Review of MYTO 2015
and Minimum Remittance Order for the year 2020.
The essence of the order, according to the commission, is the removal of historical tariff related liabilities from the financial records of DisCos.
The order which the commission posted on its website yesterday, it said that “All DisCos shall settle invoices received from NBET in full as adjusted by
the applicable tariff shortfall and the 2019 Minor Review of MYTO 2015
and Minimum Remittance Order for the year 2020.”
The was titled “Order on transitional accounting treatment on tariff related liabilities in the financial records of participants in the Nigerian Electricity Supply Industry.”
The NERC’s order also directed that all NBET invoices shall clearly indicate the amount due and payable by the Federal Government of Nigeria from multiple funding sources in the PSRP financing plan.
It directed that the unpaid tariff – related portion of the NBET invoice shall temporarily
remain in the books of the DisCos as a liability until same is paid to GenCos from the Payment Assurance Facility (“PAF”) or other funding sources in the PSRP financing plan.
According to NERC, there shall be no interest on this liability pending the payment to GenCos by NBET.
NBET, said the commission, shall apportion funds drawn under PAF or other funding sources in the PSRP financing plan to DisCos in accordance with the minimum remittance threshold approved by the Commission and issue credit notes to the DisCos in the same amount confirming that the liability has been defrayed.
It also noted that the unpaid portion of the NBET invoice that is not directly attributable to the tariff deficit shall be recovered by NBET through the payment
guarantee provided by the DisCo.
The commission insisted that the settlement of NBET’s liability to the Central Bank of Nigeria by the Federal Ministry of Finance, Budget and National Planning for the
principal and interest on PAF and its supplementary funding under PAF-X shall have a commensurate impact on the associated indebtedness of NBET.
The order, said NERC, shall take effect from the market settlement cycle of January 2020 and shall cease to have effect on the issuance of an Order of the Nigerian
Electricity Regulatory Commission (“NERC” or the “Commission”) directing
distribution licensees (“DisCos”) to settle their market invoices in full.
It added that the Commission is mandated by section 32 (1) (b) of the Electric Power Sector Reform Act (“EPSRA”) “to create, promote, and preserve efficient industry and
market structures and to ensure the optimal utilisation of resources for the
provision of electricity services”.
It also said that the Commission has continued to pursue the development of a financially sustainable electricity market that serves the needs of customers with adequate, reliable and affordable electricity supply for the socio-economic development of Nigeria.
The order said that key objective of the Commission under EPSRA is the promotion of private sector investment in the Nigerian Electricity Supply Industry. However, the
incidence of tariff deficits in the market has over the years resulted in the
accumulation of tariff related liabilities in the financial records of DisCos thereby impeding on their credit worthiness.
Continuing, the commission noted that one of the key objectives of the Power Sector Recovery Program (“PSRP”) is the removal of historical tariff related liabilities from the financial records of DisCos.
This Order seeks to resolve the continued accumulation of future tariff
related shortfalls during the transition to cost reflective tariffs and to prevent
the accrual of new liabilities in the financial records of DisCos.
“In recognition of the variance between the tariffs approved by the Commission
and actual end-user tariffs payable by rate payers, the 2019 Minor Review of
MYTO 2015 and Minimum Temittance Order for the Year 2020 has prescribed
a payment threshold for all DisCos on invoices issued by the Nigerian Bulk
Electricity Distribution Company Pic (“NBET”).
This payment shall be made by DisCos in accordance with the timelines provided in the Market Rules and securitised by unencumbered payment guarantees. The deferred payment portion of the invoices issued by NBET shall only be tariff – related revenue deficits and shall be offset upon payments to generation companies
(“GenCos”) by NBETon a draw down from the multiple funding sources in the PSRP financing plan.”
